Cash Isn’t So Safe

About a year and a half ago, I decided to make a strategic shift to hold more cash in my portfolio. I thought it would be safer and also a good way to save for a house. Rather than invest it overseas or domestically in equities, I began to horde some cash. I also liquidated some equity holdings. In retrospect, it was a very good move, since my equity holdings have been decimated, atleast in the short term.

Unfortunately, as this BusinessWeek article points out, savers have really drawn the short straw. The article argues that the American saver is suffering between high inflation, lowsavings rates, and a weak dollar. On top of that, as bank failures become more common, even cash in a bank may not be so safe.

I envy my classmates who bought their homes in the last few years. I thought I could wait for house prices to fall a little bit before purchasing. Unfortunately, the more I wait, the more my cash holdings are being eroded by inflation. Furthermore, house prices are being buoyed by the stimulus checks, bailouts and nationalization. (Yeah, I said nationalization.)

Addendum:
Oh yeah, I forgot to mention this story. There are money market funds now that are “breaking the dollar” – going under 1.00 in NAVs. This is further proof that we are undergoing a severe banking crisis.